$315B: Forex Reserves Vaporized by Oil Crash

The Doha meeting of oil producers was such a non-event that I did not even bother posting about it despite its obvious political economy connections. In the run-up to that event, Bloomberg presented data on just how much oil exporters had used from their rainy-day funds as the price of oil fell earlier this year to nearly a third of what it was in 2013. True, prices have recovered somewhat these past few weeks, but not to the level necessary to stabilize any number of marginal petro-states.

In the meantime, those forex reserves are disappearing faster than sane people at a Donald Trump rally:

The world’s top oil exporters are burning through their petrodollar
assets at an accelerating pace, increasing the pressure to reach a deal
to freeze production to bolster prices. The 18 nations set to gather in Doha
on Sunday to discuss a production freeze have spent $315 billion of
their foreign-exchange reserves -- about a fifth of their total -- since
the oil slump started in November 2014, according to data compiled by
Bloomberg. In the last three months of 2015, reserves fell nearly $54
billion, the largest quarterly drop since the crisis started.

The petrodollar burn has consequences beyond the oil nations, affecting
international fund managers like Aberdeen Asset Management Plc and
global currencies markets. Oil nations have traditionally held their
reserves in U.S. Treasuries and other liquid securities. Nonetheless,
the impact in credit markets has been muted as central banks continue to
buy debt.

The bulk of these reserves have been used by Saudi Arabia:

Saudi Arabia accounts for nearly half of the decline in
foreign-exchange reserves among oil producers, with $138 billion -- or
23 percent of its total -- followed by Russia, Algeria, Libya and
Nigeria. In the final three months of last year, Saudi Arabia burned
through $38.1 billion, the biggest quarterly reduction in data going
back to 1962.

The oil slump started in November 2014 when the
Organization of Petroleum Exporting Countries, led by the Saudis,
decided to fight for market share -- and bury U.S. producers -- rather
than cut production to support prices as it had done in the past. The
policy sent Brent crude, the global oil benchmark, down from an annual
average of $111 a barrel in 2013 to an average of just $35 so far this
year. The plunge forced producers to tap their rainy day funds.

It is said that rivalry with Shia Iran is what caused Sunni Saudi Arabia to scotch the Doha oil meeting where no agreement was reached due to its insistence that Iran sign on to the pledge to freeze production. This begs the question of why Saudi Arabia agreed to participate in this meeting when it knew that it would leave others empty-handed anyway since Iran had indicated it wouldn't participate early on. The real question going forward is how much more reserves Saudi Arabia can go through before it finally cries "uncle," regardless of what the Iranians do.